ASIC’s insight on Global Regulation for economic growth
Australian Securities and Investments Commission (ASIC) gave an insight on global regulation during its 12th Summer School.
It thanked Summer School sponsor, Mark Adams, together with his team, for breaking more Summer School records.
In the course of proceedings, they were joined by 60 presenters, who come from a diverse range of jurisdictions, industries and backgrounds and will contribute to the dialogue and debate.
As delegates, they also come from a variety of backgrounds and perspectives, ranging from financial and professional services businesses, to industry associations and fellow regulators (including colleagues from ASIC) and academia.
ASIC also have a record number of around 50 international colleagues, who represent 19 countries, including Canada, China, Fiji, Germany, Hong Kong, Indonesia, Ireland, Republic of Korea, Malaysia, New Zealand, Papau New Guinea, Qatar, Saudi Arabia, Singapore, Sri Lanka, Thailand, Vanuatu, the United Kingdom and, of course, Australia.
The composition of summer school attendees increasingly reflects participation at an international level, a indicator of the trend towards a global focus in the capital markets and the need for regulators and legislators to work carefully together to support and facilitate legitimate international business activity.
ASIC has divided the summer School into two parts to provide greater flexibility for participants and distinct focuses:
- Part 1, focused on strategic issues like doing business in Asia, perspectives across borders and valuing the consumer and
- Part 2, has a specific regulatory focus as achieving better regulation and understanding ASIC’s business.
Global Markets: Regulating for economic growth:
This year’s Summer School theme was Global Markets: Regulating for economic growth, was developed to stimulate discussion on the opportunities that now exist in the global capital markets and to consider the challenges that lie ahead in regulating these markets.
According to ASIC, the global markets are growing deeper and more liquid, with the amount of money flowing across borders increasing rapidly, boosting liquidity and reducing the cost of capital.
More and more, business are carried on the international stage, be it as a regulator, market participant, financial services provider or director of a company. They are no longer limited to focusing on the United States, United Kingdom or Europe but it extends to many of the developing markets as well.
Global capital markets can be a double-edged sword. On the upside, the increasing integration of global capital markets has a number of positive flow-on effects, including:
- Improving investment levels domestically and internationally and providing opportunity for investors from one jurisdiction to directly invest in other jurisdictions, including at the retail investor level.
- Promoting growth at both the microeconomic (i.e. company) level and broadly in terms of the macroeconomic gross domestic product level and
- Providing access to capital (as they are currently seeing with the surge in private equity deals being put on boardroom tables).
However, the exposure to international competition, and the cross-border money flows that accompany it, also accentuates the exposure to the potential regional corporate collapses and downturns, which almost inevitably happen from time to time, in one or all of world economies.
It is preparing for these types of situations that global regulation can play its role. Other terminology currently in popular use that people might be more familiar with to describe this concept is mutual recognition, comparable regulatory regimes, regulatory equivalence, substituted compliance and regulatory harmonisation.
The foundation for coordination of such an approach is that any regulatory weakness from any jurisdiction that is part of a convention like this is to be minimised.
The regulatory regimes that underpin each jurisdiction reflect a understanding of the global nature of the issues that confront them and provide a breadth of options for responses that they can pursue.
According to European Commissioner for Internal Markets and Services, recently reflected in Dublin:
precisely when a major default occur or when a few significant accidents happen, markets will adjust, amateurs will get driven out, and sound and sensible…principles will be restored.
Fools get parted from their money. And fools posing as professionals as well as professionals behaving like fools deserve to be parted from their money.
Given Australia’s prominence in the Asia-Pacific region, it is imperative that they continue to build their businesses, competing globally to survive, on foundations of a internationally accepted regulatory regime.
As one of the world’s 20 largest economies, it makes a significant contribution on the international stage. And Australia remarkable success is supported by the fact that they are the resilient economy in the world, now entering its sixteenth year of economic expansion.
They are in a position to boast about how their funds management industry is one of the sophisticated in the world, managed by talented professionals.
The size of Australia investment funds pool is US$700bn, the largest in Asia and fourth in the world. Its per capita average of investment in managed funds is valued at close to AU$50,000, dwarfing all other nations (including the United States by 20%) and reflecting an increase of around 115% over the last five years.
Australia stock market capitalisation is also ranked 9th globally, measuring US$900bn. This is complemented by stock market performance, up 19% in 2006.
On global competitiveness rankings, in 2006 the international Institute for Management Development ranked Australia 6th of 61 economics and the Wold Economic Forum placed us 19th among 125 nations.
Much of this economic success can be attributed to regulatory regime here in Australia, a balanced, principles based approach to disclosure, fundraising, corporate governance and the provision of financial services and products.
A challenge for Australia is to continue to apply the same judgment, vision and integrity that leaders in government and business have demonstrated in the past. They all know from their experience that the business environment continues to get more complex and difficult.
ASIC is mandated to:
- Enforce the laws of the Commonwealth of Australia;
- Protect consumers, investors and creditors and promote their informed, confident participation in the markets and
- Of equal importance, maintain, facilitate and improve the performance of the financial system and the entities within it to enhance commercial certainty, reduce business costs and promote the efficiency and development of the economy.
ASIC’s contribution to the debate on global regulation:
For some time, ASIC has advocated a preference for making the regulatory regime work in a cross-border environment.
At the broadest level, this involves consultation, cooperation and, ultimately, collaboration.
At the consultation level, ASIC liaises with their counterparts overseas through, for example, the International Organisation of Securities Commissions (IOSCO) and the Joint Forum.
They have a range of representatives on IOSCO’s Technical Committee and each of the Standing Committees, which cover:
- Multinational Disclosure and Accounting
- Regulation of Secondary Markets
- Regulation of Market Intermediaries
- Enforcement and the Exchange of Information and
- Investment Management.
Similarly, ASIC is committed to pursuing cooperation arrangements between regulators internationally. Their reliance on IOSCO’s Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information is the keystone for information sharing in the context of enforcement and inspection.
In accordance with their principles for cross-border financial services regulation, they recognise foreign regulatory regimes that are equivalent to the Australian regulatory regime in terms of the degree of investor protection, market integrity and reduction of systemic risk that they achieve.
Their cooperative work in the accounting and auditing areas and the adoption of the International Financial Reporting Standards is another step towards enhancing cross-border business.
A current and relevant example of ASIC’s collaborative approach to the global capital markets is their involvement in Indonesia as part of the Australia-Indonesia Partnership of reconstruction and Development (AIPRD Program).
They were honoured to have had the opportunity to meet with the Indonesian Minister for Finance and the Chairman of Bapepam LK, the Indonesian Capital Market and Financial Institutions Supervisory Agency, Rahmany, during two visits to Indonesia last year as part of the AIPRD program.
The collaboration that has taken place between Bapepam LK and ASIC over the last eighteen months or so has been successful. Their role has been to assist Indonesia in economic, financial and public sector management through the exchange of skills and expertise.
Facing the challenges ahead:
There will be challenges ahead as Australia together strives for global regulation. From ASIC perspective, Australia is currently on a cusp. They are still small enough to recognise and appreciate their domestic idiosyncrasies, but are large enough to contribute to the global scene.
Like the catchcry, Australia continues to think globally and act locally to a large degree. However, as the Asian region of which they are a part continues to grow at rates that are currently outpacing other regions, the drive for global regulation in the interests of the broader international economies will increase.
Australia not only needs to think globally, but act in a global context as well. They also need to reflect on the financial strength of the United States of America and incredible success of the European Union in influencing global markets.
According to ASIC getting the most out of global regulation will require:
- Recognising, understanding and appreciating the global nature of the environments they operate in and how they each contribute to them.
- Anticipating circumstances, such as downturns or major corporate collapses before they arise.
- Maximising the effective dialogue and cooperation between international regulators, particularly when dealing with issues surrounding international business and
- Staying abreast of developments and emerging trends.
According to ASIC, the program for this year’s Summer School provides an ideal forum for progressing their thinking on global regulation.
3-May-2007